Quiznos Has A Full Plate

Last week, Quiznos chairman and former CEO Richard Schaden delivered the keynote address at the Under One Roof — Denver Help the Homeless Summit that brought mayors from around the country to Denver to discuss ways to end homelessness.

But event promoters had also promised that Schaden would make a "major announcement," and he did. After Mayor Hickenlooper praised people who give "quietly" and not for recognition, Schaden made a speech that was anything but quiet.

"It's with great hope and pride that on behalf of the Schaden Family Foundation, that we make this contribution to Denver's Road Home and Mercy Housing to be used for the first, I hope, of many projects across the Denver community providing homes for the currently homeless. And we are committing to 1.5 million..." Before he could say "dollars," the room erupted in a standing ovation, applause which continued through the presentation of a "big, corny check," as Schaden called it, to the mayor.

This piece of publicity followed a string of good news for Quiznos, which had dealt with a lot of the opposite early in the year. In September, franchisees who were plaintiffs in a Michigan lawsuit against the Denver-based company voluntarily withdrew their claims. In October, the sandwich chain was ranked number one in wait-time performance by the Mystery Shopping Providers Association. And a few weeks ago, a federal judge in Wisconsin dismissed another franchisee suit against Quiznos.

Yes, things are looking up as Quiznos, under new leadership since January, continues to reshape its image and attempt to regain the confidence of its franchisees.

But making over Schaden's image may be a tougher sell — at least among the members of the Toasted Subs Franchisee Association, who have been driving the legal attacks on the company. While they praise changes made by new CEO and turnaround expert Greg Brenneman, they continue to charge Schaden — individually in their suits and vehemently in their complaints — of profiting at the expense of lives and livelihoods.

"Congratulations to Rick Schaden and his success, but I have no respect for the way he went about it," says association president and Boulder franchise owner Danny Kessels. "It's dirty money. Blood money."

Much of the public turmoil began with the filing of the now-dismissed Wisconsin lawsuit a year ago this month. The suit — which was not the first franchisee action against Quiznos, but was one of the first organized by the TSFA — accused the company of setting up an illegal business model by which it made profits not from the sandwiches sold to customers, but from the fees and products it trapped franchisees into paying for.

The suit might have gone largely under the radar if not for Bob Baber's fatal decision a few days later. The California franchisee shot himself three times in the chest in a Quiznos bathroom, leaving a suicide note to the media that blamed the company for his death. When TSFA founder Chris Bray posted that note to the group's web page, Quiznos terminated the franchise agreements of the TSFA's boardmembers, ("You're Toast," May 3). Eight owners sued to keep their stores open. Bray settled in August and stopped talking publicly about Quiznos (Sinking Sub, August 23).

But the lawsuits continued to speak for themselves. TSFA attorney Justin Klein pursued identical class actions in Michigan and Illinois, as well as a Colorado suit on behalf of would-be franchisees who paid and lost a $25,000 franchise fee because they were never able to find a location. Then, a week after Bray's settlement, Klein added another suit in Denver federal court that he hopes to have certified as a national class action.

But whatever momentum he had built was slowed when he withdrew the Michigan case and came to a dead stop with the Wisconsin dismissal.

In his decision, Judge William Griesbach of the U.S. Eastern District Court of Wisconsin wrote that the fraud claims were "fatally undermined" by "exhaustive disclosures" and "specific disclaimers" that were contained in Quiznos documentation the franchisees had seen and in the contracts they'd signed.

While he dismissed federal racketeering, fraud and anti-trust claims, Griesbach didn't take a position on various state claims in the suit. He even left plaintiffs with a glimmer of hope, writing that their breach-of-contract claims and their claims under the Wisconsin Fair Dealership Law and Deceptive Trade Practices Act "may be more appropriately considered by Wisconsin's state courts."

Thus, Klein says he is preparing another lawsuit for Wisconsin state court while also planning to appeal the judge's dismissal of the federal claims. His other cases, he adds, are still pending; all are presently in the discovery phase. "I don't think it's going to have an effect on the other cases," he says.

Quiznos' Richard Emmett, however, sees the Wisconsin dismissal as a clear sign of things to come. The company's executive vice president and chief legal counsel, part of the new management team, says the decision, which came from a respected judge, was "direct," "preliminary" and "harsh." "Their voluntary withdrawal [of the Michigan case] is very telling," he says. "People can draw their own conclusions."

If the TSFA — which he says doesn't represent the majority of franchisees — would focus on the positive changes the company has made since Brenneman came on, they'd see that their demands no longer make sense, he adds. Emmett, himself a franchisee who owns twenty Papa John's, said food costs have declined 3 or 4 percent and insists that the company is paying close attention to how and what it markets. He cited a new menu and the recent introduction of lower-priced flatbread tacos — called Sammies — as examples. He also says Quiznos is making an effort to better support and communicate with its franchisees with new policies such as guaranteeing that a franchisee who calls corporate with an issue gets a return call within 24 hours.

"They're trying. They're trying very hard," says the TSFA's Kessels. But he argues that franchisees need more control of the business, specifically over purchasing and advertising dollars. He hopes the litigation will win them those concessions. "I still truly believe it's just a matter of time before we have our day in court," he says.

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